EconoFACTS

January 18, 2023 | 14:58

Beige Book — A Portrait of an Economy at a Virtual Standstill

Economist

Senior Economist and Vice President
Economics

Erik conducts research on financial product market trends, emerging risks and macroeconomic trends for the Bank.... (Read more)

Erik Johnson

Senior Economist and Vice President
Economics

Erik conducts research on financial product market trends, emerging risks and macroeconomic trends for the Bank.... (Read more)

This week's numbers have been disappointing thus far (I'm looking at you industrial production and retail sales). Well, add to that the latest Beige Book, prepared by the Cleveland Fed, with info collected on or before January 9, which noted that “economic activity was relatively unchanged since the previous report”. That suggests a weakening economic backdrop compared to November's report, which pointed to growth being “about flat or up slightly”. So, we've now had back-to-back reports hinting at slowing economic conditions across Fed Districts; on the horizon from this report, many “expected little growth in the months ahead”. The situation appears more dire in the New York District, where, mirroring the Empire State Manufacturing Survey, there was an outright decline in activity. One bright spot from the overall summary is that services demand remains relatively sturdy. Firms in tourism pointed to “robust activity” and nonfinancial services firms reported “stable demand”. Still, based on the latest Beige Book, the Fed appears to be getting exactly what aggressive rate hikes were designed to do: a slowing economy.

On inflation:

Consumer prices rose modestly or moderately in most Districts, though many reported that “the pace of increases had slowed from recent reporting periods”.
Retailers relayed “increased difficulty in passing through cost increases”, which highlights that households are becoming more reluctant to spend amid still-high inflation.
Looking ahead, on balance firms “expected future price growth to moderate further”.

On the labor market:

Most Districts continued to see “modest to moderate” growth in employment. But, Kansas City reported a slight decline and, in the St. Louis District, employment remained unchanged since the last report.
Firms reported being reluctant to lay off workers.
Wage growth “remained elevated across Districts” though some indicated that “these pressures had eased somewhat”.

Bottom Line: Overall, the anecdotes from the Beige Book are supportive of the Fed slowing the pace of tightening in February.